|
A dispensation is a document issued by an employer's tax office, confirming that the tax legislation applying to the specified expenses payments and benefits no longer apply. A dispensation is only issued if the tax office is satisfied that no additional tax is payable on certain payments, benefits and facilities that are provided for the specified employees.
There is no point reporting expenses payments and benefits if the employee may simply apply to HMRC for tax relief in respect of the amount reported on the P11D or P9D. As a result, the purpose of a dispensation is to reduce the administrative burden of completing and filing P11D and P9D returns on
- the person completing the returns on behalf of the employer,
- the person handling the returns in the tax office, and
- the employee who is required to complete a self-assessment tax return.
It is this saving in administrative work that makes a dispensation such an attractive proposition for everyone involved. It can make the difference for some employers between completing hundreds of P11Ds, and completing just a few.
The statutory basis for dispensations is found in sections 65 and 96 of the Income Tax (Earnings and Pensions) Act 2003. In general, dispensations apply only to employees for whom a P11D must be completed (i.e. those with an annual earnings rates of £;8,500 or more). However, they can also apply to lower-paid employees for whom a P9D must be completed (i.e. those with an annual earnings rate of less than £;8,500) where vouchers or credit cards are used to provide business-related benefits or expenses.
HMRC will not provide dispensations for
- taxable company cars and vans
- private medical insurance
- beneficial or "cheap" loans
- mileage payments.
To obtain a dispensation, employers may simply contact their tax inspector and discuss the options available. However, to simplify the procedures, HMRC provides form P11DX, a new version of which became available in April 2006. If the employer can answer the questions to the satisfaction of HMRC, a dispensation can be issued without the need for separate discussions.
The nature of the questions asked on form P11DX gives a clear indication of the procedural arrangements and controls that employers must have in place before a dispensation is granted.
First, the employer can indicate whether the dispensation sought will apply to all employees or only to certain groups of employees or to certain individuals. For example, the employer may choose, because of the difficulty in controlling expenses payments made to directors, to exclude directors from the dispensation.
The series of questions posed on the form are designed to commit the employer to apply strict administrative controls to the payment of expenses. For example, the employer should be able to confirm that
- travel and subsistence expenses are only paid for journeys that employees have to make in carrying out the duties of their employment, or in travelling to a temporary workplace, or in attending work-related training
- the payments made do not exceed the full cost incurred of such travel and subsistence
- no payments are made for travel and subsistence expenses for private or commuting journeys
- the payments made to employees for business mileage in their personal vehicles are all Approved Mileage Allowance Payments
- the payments made to employees for business mileage in company cars do not exceed HMRC's Advisory Fuel Rates for company cars
- payments for the cost of a hire car, and for the reimbursement of petrol costs in a hire car, are only made on production of a receipt
- business telephone calls from an employee's private home telephone are supported by itemised bills, or similar, and charges for line rental or equipment are not reimbursed
- only the actual costs of entertaining business contacts from outside organisations on business occasions are reimbursed, and the costs of entertaining relatives or partners or employees are not met
- the use of employer-provided credit or charge cards is only allowed for work-related expenses or, if they are used for personal expenses, the personal expenditure is reimbursed in full.
If fees and subscriptions to professional bodies are paid or reimbursed where membership is related to the employment, the employer must list the organisations concerned.
The final section of form P11DX requires the employer to confirm the means by which expenses claims are supported and monitored. Invoices or receipts should be produced for every item of expenditure claimed and each claim should be examined by someone other than the claimant to ensure that nothing is claimed that is not allowable under the tax or NICs legislation or that is excessive. If the employer is unable to confirm those conditions, the means by which expenses claims are controlled must be explained, for example, circumstances where a receipt is not required, or where only a representative sample of claims are scrupulously checked.
More detailed guidance on the provision of dispensations is given by HMRC in the Employment Income Manual, from page EIM30050 onwards
(www.hmrc.gov.uk/manuals/eimanual/EIM30050.htm), and on page EIM16180
(www.hmrc.gov.uk/manuals/eimanual/EIM16180.htm) for vouchers and credit cards.
...back to 27 April 2006
|
For Payroll and Human Resource Professionals
